Caterpillar Is A Bull-Trap Right Now
EWM Interactive | Apr 26, 2016 06:47AM ET
Caterpillar Inc (NYSE:CAT). stock surprised everyone, when it rose from 56.32 to 80.83 since January. After this 24-dollar recovery, investors are wondering how high could prices go and is it time to buy the stock. But one should never buy something just because its price is rising. Instead, we prefer using the Elliott Wave Principle to determine the best entry point. And at this stage, Caterpillar is not looking so healthy. The chart below explains why.
The Wave principle is a forecasting method, based on pattern recognition. In this case, the 4-hour chart of Caterpillar stock shows that the recent recovery took the shape of a five-wave impulse. In fact, as many as three degrees of trend could be found within the structure of the advance, marked as wave (I/A). According to the theory, this pattern should be followed by a three-wave decline. In addition, the relative strength index is showing a multiple bearish divergence since the top of wave (iii).
If this is the correct count, we could expect a significant pull-back in wave (II/B) from now on. It could provide much better buying levels than the current. So, traders and investors, who are willing to go long on Caterpillar stock, would be better off waiting for the price to drop by some 10 dollars a share, before pulling the trigger.
Original post
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.